Multiple Choice
Which of the following statements about the accumulated depreciation account is true?
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9. Current Liabilities
Types of Liabilities
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Which type of bonds typically offer a higher yield to investors?
A
Serial bonds
B
Debenture bonds
C
Secured bonds
D
Convertible bonds
Verified step by step guidance1
Understand the concept of bond yield: Bond yield refers to the return an investor earns on a bond. It is influenced by factors such as risk, security, and convertibility.
Analyze the characteristics of each bond type: Serial bonds are repaid in installments over time, reducing risk. Secured bonds are backed by collateral, making them less risky. Convertible bonds can be converted into equity, offering potential upside but typically lower yields due to this feature.
Focus on debenture bonds: Debenture bonds are unsecured, meaning they are not backed by collateral. This higher risk typically results in a higher yield to compensate investors for the increased risk.
Compare risk and yield: Higher risk generally correlates with higher yield. Since debenture bonds are unsecured, they carry more risk compared to secured bonds or serial bonds, leading to higher yields.
Conclude that debenture bonds typically offer a higher yield to investors due to their unsecured nature and the associated higher risk.
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